Sam Smith, a CFP licensee, opened his own financial planning company this year. He called his company Smith and Associates to make is appear more impressive even though the company was made up of just himself and one other newly registered CFP, Jane, that Sam would be supervising until she became more comfortable in her position. 

 

Sam had engaged fifty new client relationships in the first six months - so business was fairly good!  Most of the clients were quite happy with the services that Sam was providing; however, one couple, Mr. and Mrs. Counterbuckle had been difficult to deal with and had requested that there accounts be transferred to another firm!  Sam had just received another voice-mail from Mr. Counterbuckle last week requesting that he return some of their original documents - this was the second time that he had left the same message for Sam over the last month!  Sam was extremely busy this week with 10 new client meetings, so he diarized to send the information out next week.  

 

To obtain clients Sam asked Jane to place an advertisement in the local newspaper.  The ad that Jane took out in the paper promoted the company as having extensive experience in all areas of financial planning including retirement planning, insurance and mutual funds. 

 

Sam is currently licensed to sell mutual fund products only but plans to obtain his insurance license within the next several months.  Sam has been so occupied over the last couple of years in preparing to open his business that he has not had the opportunity to stay abreast of recent changes in the industry or do any studying for his insurance licensing examination - but he is confident that he will now have the chance to get all caught-up. 

 

A new prospect, Betty-Lynn, met with Sam at Smith & Associates based on the advertisement which she had seen in the local newspaper.  During the first meeting, Betty-Lynn asked for Sam's advice on her home insurance policy and Sam confessed that he had not yet written the last exam for his insurance license, but that he had been studying very hard - so he expected to write it in the next month or two.  However, since it was a very straightforward and simple question about premiums, Sam answered it and Betty-Lynn was very impressed with this extra level of service! 

 

Betty-Lynn then gave Sam a cheque for $125,000 to invest evenly across five mutual funds that Sam personally thought were going to provide the best returns.  Sam did not discuss with Betty-Lynn how he was going to get compensated for completing the investment request because she did not seem all that concerned about it - rather, she just wanted the money to be invested as quickly as possible.  After the meeting, Sam deposited Betty-Lynn's cheque in his company's general bank account since he had not had time yet to open a separate client deposit bank account. 

 

Later that same day, after he had finished placing some rebalancing trades on his niece's RESP account for his sister, Sam remembered about Betty-Lynn's money and he quickly invested it into three of the same mutual funds that they had discussed earlier. Unfortunately, the trades missed the cut-off for that day, so they would be automatically traded the following day.  Sam wasn't overly concerned about missing the cut-off, he knew mutual funds weren't as volatile as stocks - so the daily price movement wouldn't be all that drastic and besides, the markets had been down that day, so it would benefit Betty-Lynn to have the trades entered the following day!  Sam had chosen the funds from a group that paid the highest level of commissions, but within that group, he was also careful to choose the funds that had the best recent financial performance. 

 

Later that night, Sam told a fellow financial planner, Joyce, about his luck in getting Betty-Lynn as a client. Sam was so excited that he told his friend all about Betty-Lynn and everything that had transpired during the meeting.  He also bragged about how much money he was going to make in commissions on selling the mutual funds.  It definitely had been a very good day! 

Use the link below to answer the following questions with reference to the FPSC Standards of Professional Responsibility which outlines the eight principles in the Code of Ethics, as well as, the FPSC Rules of Conduct. 

 

https://www.fpcanada.ca/docs/default-source/standards/standards-of-professional-responsibility.pdf 

 

 

Are there any potential issues that Sam should be aware of - specifically regarding how he promoted and advertised his company? (4 marks) 

 

Answer rating: 100% (QA)

Based on the FPSC Standards of Professional Responsibility and Rules of Conduct there are several potential ethical issues and violations in the scenario presented Principle 1 Integrity Sams company n... View the full answer